May 4, 2010

The Other Oil Externality

Ezra Klein points out that oil spills simply happen on a regular basis, and then concludes we need to account for them as part of the cost of relying on oil:

If the cost of spills like this one is too high to bear, then we have to wean ourselves off of oil, not simply get really upset about this spill. Because there will be more spills. And they will happen in parts of the world that we don't pay much attention to, and that don't have our high safety standards or our ability to rush mitigation measures into place. What we're seeing here is not a horrible disaster (though it is that), but a cost of relying on this particular type of fuel. And it has to be factored into our calculations.

Put another way, oil carries a number of externalized costs. Most public attention has focused on the cost of emitting carbon into the atmosphere, but the costs of cleaning up the inevitable spills, and the military foreign policy costs of enriching petro-states, which tend to be unfriendly, and having to secure foreign oil supplies are highly significant. If all these costs were paid at the point of sale, people would switch to other energy sources. But the costs of environmental cleanup and foreign policy stress are born mostly by the government, and the costs of carbon emissions are born mostly by future generations. So it's rational for us to have internal-combustion engines -- we can largely free-rise on somebody else's subsidy.